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Jokowi Seeks to Curb Cash in Anti-Graft Push for Indonesia Vote

(Bloomberg) -- Indonesia plans to cap the usage of cash to burnish President Joko Widodo’s anti-graft image before elections next year.

Authorities are discussing a draft bill that will limit cash transactions by individuals and companies to 100 million rupiah ($7,261) each day, said Kiagus Ahmad Badaruddin, chairman of the watchdog Financial Transaction Reports and Analysis Centre. Under the proposed rules a buyer of a Honda City sedan, priced at about 300 million rupiah in Jakarta, will have to swipe a credit card or use a bank transfer to avoid being fined or possibly even tried for prison.

“If the bill is passed into a law it will encourage the society to become a less-cash society,” Badaruddin said by phone on Wednesday. “The rule aims to curb black transactions such as money laundering and terrorism financing, and spur higher transparency as people will be required to go to banks.”

Indonesia is the second-largest cash-based economy in the world, according to KPMG, while Transparency International ranks it alongside Colombia and Liberia as the 90th most corrupt country among 176 nations. Bambang Soesatyo, a key Indonesian lawmaker and speaker of parliament, told the Jakarta Post he’d support the bill because cash curbs will help reduce vote-buying.

The legislation would need to be ratified by parliament and approved by Widodo, known as Jokowi, for it to become law. The bill was first mooted in 2014 but has gained urgency with various ministries and financial agencies pushing for its passage this year.

Jokowi is the first president to come to power from outside Indonesia’s political elite, gaining support with pledges to improve people’s daily lives while making it easier to do business by streamlining regulation and tackling graft. This February, he won the backing of the nation’s biggest political party for a second five-year term in office.

While Bank Indonesia may find it easy to boost non-cash transactions in the biggest islands in the archipelago, it will need to ensure there’s enough cash supply in far-flung regions, said David Sumual, Bank Central Asia’s chief economist. He estimates that about 80 percent of financial transactions are recorded in the hubs of Jakarta and Sumatra in a nation where more than 60 percent of the population has no access to formal banking services.

“We will hopefully see less tax evasion practices too because financial transactions will be better documented,” Sumual said.